[Paper] Bitcoin-IPC: Scaling Bitcoin with a Network of Proof-of-Stake Subnets

Source: arXiv - 2512.23439v1

Overview

The paper presents Bitcoin‑IPC, a software stack and protocol that lets anyone spin up fully programmable Proof‑of‑Stake (PoS) Layer‑2 chains—called subnets—whose security is anchored in Bitcoin’s base layer (L1). By using Bitcoin’s existing SegWit infrastructure as a cheap, permission‑less messaging bus, Bitcoin‑IPC can move value between subnets and settle on‑chain without changing the Bitcoin protocol itself. The authors claim a 23× reduction in virtual‑byte cost and a boost from Bitcoin’s ~7 tps to >160 tps, moving the network a step closer to being a universal medium of exchange.

Key Contributions

• Permissionless PoS Subnet Architecture – A design for creating arbitrary L2 chains whose stake is denominated in BTC, eliminating the need for separate native tokens.
• Embedded Messaging via SegWit – Re‑uses Bitcoin’s SegWit witness data as a low‑cost, censorship‑resistant channel for cross‑subnet communication and settlement.
• SWIFT‑Inspired Routing Model – Introduces a “message‑hub” pattern that routes payments through Bitcoin L1, enabling atomic multi‑hop transfers across independent subnets.
• Cost & Throughput Gains – Formal analysis and prototype measurements showing up to 23× lower vB/tx and >160 tps effective throughput, all while keeping Bitcoin’s consensus untouched.
• Open‑Source Reference Implementation – A full software stack (node, SDK, and test harness) released under an MIT‑compatible license for developers to experiment with.

Methodology

1. Design Layering

   • L1 (Bitcoin): Provides immutable ordering, finality, and a cheap broadcast channel via SegWit witness fields.
   • L2 Subnets: Independent PoS chains that maintain their own state machines (smart contracts, tokenomics, etc.) but lock BTC as collateral in a special “anchor” UTXO on L1.

2. Stake‑Denominated PoS

   • Validators on a subnet stake BTC that is locked in a multi‑sig script on L1.
   • Slashing conditions are enforced by broadcasting a proof of misbehavior to L1, which then burns or redistributes the locked BTC.

3. Cross‑Subnet Messaging

   • Each subnet writes a compact “IPC packet” into the witness field of a SegWit transaction.
   • A lightweight relayer service monitors the Bitcoin mempool, extracts packets, and forwards them to the destination subnet.

4. Atomic Transfer Protocol

   • A two‑phase commit style protocol:
     • Prepare – Sender’s subnet creates a conditional output on L1 that can be redeemed only if the receiver’s subnet acknowledges receipt.
     • Commit – Receiver’s subnet publishes a proof, unlocking the conditional output and finalizing the transfer.

5. Evaluation

   • Implemented a prototype with three sample subnets (a payment chain, a DeFi chain, and a NFT chain).
   • Ran a series of micro‑benchmarks measuring vB cost, latency, and throughput under varying transaction mixes.

Results & Findings

Interpretation

• By off‑loading most state transitions to PoS subnets, Bitcoin‑IPC dramatically cuts the amount of data that needs to be written to the Bitcoin blockchain, hence the massive vB savings.
• The “routing through L1” approach preserves Bitcoin’s strong security guarantees while still enabling high‑speed, low‑cost transfers.
• Latency remains higher than typical centralized payment rails, but is comparable to other L2 solutions (e.g., Lightning) and acceptable for many merchant‑to‑consumer use cases.

Practical Implications

• Developers can launch custom, BTC‑backed sidechains without needing to bootstrap a new token economy, simplifying regulatory compliance and user onboarding.
• Merchants could accept payments on a high‑throughput subnet (e.g., a stable‑coin‑like layer) and settle instantly on Bitcoin, reducing fee exposure while retaining Bitcoin’s settlement finality.
• DeFi & NFT Platforms gain a secure, low‑cost settlement layer that leverages Bitcoin’s liquidity pool, opening the door to cross‑chain composability without trusting third‑party bridges.
• Infrastructure Providers (e.g., block explorers, wallet vendors) can add native support for IPC packets, offering users a seamless “Bitcoin‑first” experience for L2 activities.
• Enterprise Payments (e.g., SWIFT‑style messaging) can adopt the routing model to build private, permissioned subnets that still benefit from Bitcoin’s public auditability.

Limitations & Future Work

• Reliance on Relayers: The current design assumes honest, well‑connected relayer nodes to extract and forward IPC packets; a more decentralized gossip mechanism is needed.
• Latency Ceiling: While throughput improves, the cross‑subnet commit still depends on Bitcoin block times, limiting real‑time use cases.
• Validator Incentives: The paper sketches a slashing model but does not fully explore long‑term economic sustainability for large validator sets.
• Privacy: All IPC packets are publicly visible in the witness field; future work could integrate confidential transaction techniques.
• Formal Security Proofs: The authors provide informal arguments; a rigorous provable security model (e.g., UC framework) would strengthen confidence.

The authors plan to open a testnet, explore decentralized relayer designs, and integrate zero‑knowledge proof systems to address privacy and scalability concerns.

Authors

• Marko Vukolić
• Orestis Alpos
• Jakov Mitrovski
• Themis Papameletiou
• Nikola Ristić
• Dionysis Zindros

Paper Information

• arXiv ID: 2512.23439v1
• Categories: cs.DC, cs.CR
• Published: December 29, 2025
• PDF: Download PDF